The lifetime health cover loading

The first thing to understand is that the Australian government really wants you to take out private health insurance to ease the burden on the public healthcare system, and that's fair enough.

It's why the government imposes a penalty on Australian citizens or permanent residents who don't take out private health insurance by the start of the financial year following their 31st birthday.

The penalty is called Lifetime Health Cover (LHC) loading, and it adds a two percent surcharge on top of your premium for every year you don't have private health insurance starting on 1 July after you turn 31.

LHC only applies to hospital cover; you're not required to take out extras cover (for things like dentistry and physio) to avoid LHC loading.

If and when you do get hospital private health insurance, the loading continues for 10 years.

The surcharge has a 70% cap, so if you delay getting private health insurance until age 66, for instance, almost half of your premium will be an LHC surcharge. As an example:

For couples taking out cover in their mid-sixties and facing an annual premium of $3400, the total once you add in LHC loading would balloon out to $5780 a year. (Though you're exempt from LHC loading if you were born before 1 July 1934.)

Well before your mature years, however, an LHC surcharge can cost you many thousands of dollars in premiums you wouldn't have had to pay if you'd bought a private health insurance policy when the government wanted you to.

With the cost of private health insurance continuing to rise significantly even without LHC loading, such a financial penalty appears to have proven a pretty effective deterrent to people putting off private health insurance for too long if they plan to take it out at all.

Lifetime Health Cover for migrants

The LHC protocol is pretty straightforward for Australian citizens, but what about migrants who arrived in Australia well after age 31 and didn't get the message about the costs of LHC loading and the deadline that applies to migrants?

Is it fair to charge LHC loading for years that a migrant did not yet live in Australia and therefore were not a burden on the Australian healthcare system? Whether it's fair or not, that's how it works.

We asked the Department of Health about this discrepancy, but a spokesperson simply reiterated the policy, saying "for migrants, the LHC loading of 2% for each year is applied regardless of whether or not they lived in Australia when they were aged 30 or over".

It seems even less fair when you consider the migrant may well have had private health insurance in the country they came from.

LHC for migrants – here's how it works

Migrants to Australia who are over 31 when they arrive have 365 days from Medicare registration to take out private health insurance and avoid LHC loading. If you miss the 365-day deadline, your 'base day' – when the 2% loading would begin – will be 1 July after your 31st birthday, regardless of where you were living at the time.

If you migrate and turn 31 while living in Australia as a permanent resident or citizen, you have until 1 July following your 31st birthday or one year after Medicare registration to take out private health insurance and avoid LHC loading, whichever event comes second. In this case, your 'base day' is whichever of these dates applies to your situation.

If you're a migrant who is overseas on 1 July following your 31st birthday and you registered with Medicare on or after 1 July 2009, you have 365 days after returning to Australia to take out private health insurance and avoid LHC loading.

LHC for overseas residents and citizens

Australian citizens and permanent residents who were overseas on 1 July following a 31st birthday in Australia that fell after 1 July 2000 have 365 days after returning to Australia to take out private health insurance and avoid LHC loading. You can be in Australia for up to 90 days per visit before the 365-day countdown begins, though the 90 days will count toward that limit if you stay longer.

Australian citizens and permanent residents who were overseas and over the age of 31 on 1 July 2000 have 1094 days to take out private health insurance once they return to Australia without incurring the LHC loading. The 1094 is a lifetime limit. You can return to Australia while living overseas for up to 90 days at a time without affecting the limit, but anything over 90 days counts against the 1094 total.

But bear in mind that health funds can make mistakes, either through incompetence or negligence. One Australian woman who was living overseas when LHC loading was first introduced in July 2000 recently contacted CHOICE about her LHC loading issue and ending up getting a $6200 refund from her insurer due to an incorrectly applied loading.

If you migrate from one of the 11 countries that has reciprocal healthcare agreements with Australia, your 365-day countdown to take out private health insurance and avoid LHC loading after age 31 starts when you're granted full Medicare eligibility.

How does the LHC affect migrants to Australia? Consider this real-life case study

Our case study moved to Australia at age 45 and took out private health insurance (PHI) with HCF two weeks past the 365-day deadline to avoid LHC loading. He had not heard of the LHC levy, nor had his Australian wife. It was a coincidence that he was so close to the deadline. LHC information is communicated to migrants by the Department of Health and the Department of Human Services, but it's easy to miss the memo in the barrage of other migrant paperwork.

Because our case study missed the deadline, HCF applied a 32% LHC loading. It meant that a 2% surcharge was added for every year after age 31 that this person did not have Australian private health insurance. The kicker is that this person did not migrate to Australia until age 45, so in effect he was penalised for accessing the Australian healthcare system without private health insurance for the 14 years between ages 31 and 45 – years when he did not live in Australia and could not have accessed the Australian healthcare system. Then another 2% loading was added for each year he was a resident of Australia without private health insurance, even though he was only about two weeks into his second year. During the years between ages 31 and 45 he had PHI in his own country.

Our case study appealed to HCF regarding his situation to no avail, though his Australian wife (who had 1094 days, not 365, to take out private health insurance upon returning to Australia without incurring an LHC loading) was reimbursed $2188.55 after providing an International Movement Record.

How much has our case study paid in LHC loading to date? Had he not caught wind of the LHC issue and requested the rebate from HCF, it would have been $5422.50 as of January 2017.

Factoring in his wife's rebate and $121.45 in LHC loading on his latest monthly premium payment, he has paid $3355.40 so far. His 10-year LHC period ends in July 2017.

Who's responsible for making migrants aware of LHC loading?

According to the Department of Health spokesperson, the Department of Human Services sends migrants information about private health insurance and LHC loading along with their Medicare cards, and the Department of Health sends new migrants info about LHC in May each year.

A spokeswoman for the Department of Immigration told us "new migrants have access to a range of information about health and social services in Australia via links on the Department's website," adding that "questions about how the Lifetime Health Cover loading is applied should be directed to the Department of Health".

Though the insurer made no such enquiries with our case study, the Private Health Insurance Ombudsman told CHOICE that health insurers should ask new customers about their immigration and citizenship status and how it might apply to LHC loading.

"It would be expected that health insurers should make appropriate enquiries at the time of joining to ensure the correct LHC loading is applied," a spokesperson said. "Where the incorrect loading has been applied, the insurer may be obliged to retrospectively correct this."

It's worth pointing out that the revenue generated by LHC loading stays with the private health funds instead of going to the health department to help offset the burden placed on the healthcare system by people without private health insurance, which would seem to make sense.

How to appeal against an LHC loading

If you're a migrant or returning citizen and think LHC loading has been inaccurately applied to your private health insurance premium, you'll need two documents to make your case.

International Movement Record – Indicates when you first arrived in Australia as a permanent resident or returning citizen. You will need to request this from the Department of Immigration and Border Protection. Our case study received his in a few days.

Medicare Eligibility Letter – Indicates when you first became eligible for Medicare benefits and, for migrants, is used to establish your "base day", or the day when the 365-day countdown to obtain private health insurance and avoid an LHC loading begins. Our case study had to visit a Centrelink/Medicare office to obtain this letter.

How to lodge an LHC-related complaint

The Private Health Insurance Ombudsman requires you to try to resolve any dispute through the health insurance provider's complaints process first.

If that doesn't work out – or you think the insurer is taking too long to deal with the complaint – contact the PHIO on 1300 362 072, 9am-5pm Mon-Fri (AEST), or email phio.info@ombudsman.gov.au.